Since the US presidential election, investors have been scrambling to analyze the effects that the incoming Joe Biden administration could have on the stock market and the broader American economy. Here’s what you need to know about how the incoming Biden administration could affect the stock market through both executive and legislative channels.
How Biden Could Affect Markets With Executive Power
The most direct power Joe Biden will have in the early days of his presidency will be that of the executive order. While limited in scope, these orders give Biden the power to pursue several policies that could have a negative impact on the stock market. Biden is widely expected to use executive authority to block oil exploration on federal land and reduce energy company access to low-cost federal loans. Both of these actions would likely depress stocks in the energy sector to a limited extent.
Biden is also likely to make more liberal use of the Defense Production Act to increase the output of masks, ventilators, and PPE for the COVID-19 pandemic. While not necessarily negative, the use of this act to compel the production of certain goods is generally viewed with skepticism by investors.
The Promise of a Divided Government
While there is potential for disruption from executive orders, markets have more cause to be optimistic on the legislative front. While Biden won a fairly handy victory in the presidential race, Americans were less friendly to Democrats in down-ticket legislative elections. As a result, it appears likely that the Senate will remain in Republican hands, while Democrats will maintain a slimmer majority in the House of Representatives.
As a result of this divided government, the Biden administration will likely be unable to raise taxes or institute major new regulatory programs. Any legislative action would require bipartisan agreement in the Senate, effectively ruling out the passage of major progressive agenda items for at least the next two years.
Overall, the incoming Biden administration is likely a net gain for the stock markets. Without the ability to radically alter taxation or fiscal policy, the new administration won’t exert significant downward pressure on economic growth. Meanwhile, greater political stability in the White House will likely be seen as positive by investors as the recovery begins. While the new administration may depress stocks in a few key sectors, its effect on the broader economy and stock market is apt to be slightly positive.